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Rich at any age: Making an estate plan

Plan while you’re alive and avoid complications in death.

Death and taxes may be inevitable, but problems with your estate are anything but. A proper estate plan ensures that as much of your hard-earned money as possible goes to the loved ones of your choice and as little as possible to the taxman. It also heads off any squabbling among family members.

Unfortunately, many Canadians don’t take the time to make an estate plan. Maybe it’s the terminology — “estate” suggests a spacious manor set in rolling hills and a stable of fancy cars. But drawing up an estate plan is a smart move for folks at any income level, and the good news is that the process is easier than you think.

The first and most important step is to make a will. “It’s the cornerstone of your estate plan,” says Sandy Cardy, vice-president, tax and estate planning at Mackenzie Financial Corp. in Toronto. “Yet about 50% of the people who should have a will, don’t.”

If you die without a will — known as “dying intestate” — the government decides who your beneficiaries are, and how your assets will be divvied up. “Not only will your assets not go where you want them — for example, a common-law or same-sex spouse might not be recognized in most provinces — but they’re not going in the most tax efficient way,” says Cardy. It’s well worth paying a lawyer to draft a proper will, she says. A lawyer can also help you draft medical and financial powers of attorney, which set out who will make decisions on your behalf if you become incapacitated. Rates vary considerably so phone a few lawyers to find how much they charge for this service. Expect to spend $400 to $600 for a basic set of wills and powers of attorney for you and your spouse.

Once you’ve written a will, it’s crucial to talk to your family about its contents. “There’s nothing like greed for cash, inheritances and family heirlooms to drive a wedge between siblings,” says Cardy. “I see it every day — otherwise very healthy, happy siblings being ripped apart.” She’s witnessed fights over money, like the one that occurred when $50,000 was left in one daughter’s name (in an attempt to reduce probate fees) without clear instruction to split it 50-50 with her sister. She’s also seen families blown apart over emotional landmines, such as the case of adult siblings who refused to speak after fighting over possession of an old cribbage board from the cottage.

Debbie Ammeter, vice-president of advanced financial planning at Investors Group Financial Services in Winnipeg, says you should ease into a discussion of your will gradually. “People have trouble talking about money and death,” she says, so you might start by talking about related issues, such as plans for your funeral, powers of attorney or health care issues. “Then you can get into discussions about your will and estate, so you’re doing it gradually rather than just jumping in and talking about your finances all at once.” If you’re not comfortable speaking to all your heirs as a group, try one-on-one conversations, but be sure to give a consistent message to everyone.

Your will should be set up so the taxman gets as small a slice as possible. In general, a surviving spouse won’t have to pay tax on assets left to him or her. Most of the hit comes when assets are transferred to the next generation. “While we can’t avoid taxes, there are strategies to minimize the hit, or spread the cost out over time,” says Cardy. Talk to a lawyer about how to gift assets while you’re still alive, or get an accountant or financial planner to advise you about ways to transfer a cottage so that the capital gains on it are recorded over more than one year.

You may also look at custom-designed testamentary trusts to help you control how your assets are distributed. For example, you might arrange for a child who’s lousy with budgeting to receive her inheritance in stages at ages 18, 21, and 30. Again, a lawyer’s advice is essential.

Sure, it takes some effort to structure a proper estate plan. But you’ll save your family time, money, and more importantly, headache and heartache. Think of it as a way to protect your legacy. “Don’t sit back and assume the kids will sort everything out once you’re gone,” says Cardy, “because that won’t happen.”

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